Bank of France trims key interest rate

Bank of France trims key interest rate

PARIS (Reuter): The Bank of France made its second small interest-rate cut in a week on Thursday, taking many in the financial markets pleasantly by surprise and affirming a new- found flexibility, according to analysts.

The central bank trimmed its key intervention rate, which sets a notional floor on market interest rates, by 0.10 percentage point to 5.90 percent from 6 percent.

Analysts said the cut showed the central bank was making good a commitment made by governor Jean-Claude Trichet last week to keep on easing rates gradually.

They added it confirmed a new flexibility on several counts -- the Bank was prepared to cut rates even when the franc was soft against the German mark, that it could cut without waiting for its German counterpart, the Bundesbank, and that it could move even when its monetary policy council was not meeting.

Patrick Mange, an economist at Deutsche Bank in Paris, said, "It's a very good sign because it shows the Bank of France is prepared to anticipate what is going to happen in Germany."

In recent months, the Bank of France has appeared to analysts to have been waiting for the Bundesbank to lower its repo rate before tracking this with intervention-rate cuts. The Bundesbank has only cut its repo rate by 0.04 percentage point since last week's 0.10 percent French cut.

Some analysts had been critical of the French central bank for being too cautious in cutting rates, despite very low inflation of just 1.8 percent, at a time of record unemployment.